How long should you keep a fleet vehicle?
We've listed some helpful ways to break down some of the factors you should consider when you’re thinking of replacing a vehicle.
Is there a magic formula for how long to keep a fleet vehicle?
There can be two extremes when replacing fleet vehicles. Some companies have structured replacement cycles based on an analysis of the running costs and depreciation rates. Others drive them until they cost more to fix than the car is worth.
In practice, there’s no magic formula that tells you when to replace a company car because there are a number of factors you need to consider, including your own preferences, your method of finance, and the amount of profit your business has made in the last year.
In 2022, the COVID impact on supply chains, which has meant fewer new cars and therefore fewer used cars in the market, is influencing replacement cycles and forcing large and small businesses to rethink how often they update their fleet vehicles.
5 things to consider when deciding how long to keep a fleet vehicle
- COVID impact
- How many kilometres does the car travel each year?
- Older vehicles cost more
- Keeping employees happy
- New car model cycles
According to a report in January 2022 by Moody's Analytics, the delays to new car deliveries caused by COVID has increased used car prices by 56% since early 2020. This makes 2022 a great time to replace vehicles in your fleet if you can source a new car because the market for used fleet cars is at a record high.
How much your business uses fleet cars is something you should review regularly by looking at the total kilometres each vehicle travels per year and then at what percentage of those kms is for business use.
The average mileage for non-fleet vehicles is 15,000 km per annum. Fleet vehicles usually travel around 30,000 km each year and the business use percentage is usually above 70%.
The popular replacement cycles for passenger vehicles are 36 months/90,000 km and 60 months/150,000 km for light commercial vehicles. Trucks are often replaced after seven or eight years and the kilometres vary depending on their purpose.
Many organisations with large fleets work on fixed replacement cycles based on a Total Cost of Ownership (TOC) model. This formula uses depreciation schedules and maintenance expenses to work out when the car will cost them more to operate than a new model and so, optimise the ownership period.
For example, if your current four-year-old Toyota Hilux costs $1,100 per month to operate and a new one would cost the same, why not replace it?
With some planning, businesses of any size can work out an optimum replacement cycle using the TOC model and this can be included in your annual budgeting process.
Getting a new car is a great experience. When an employee receives a new fleet vehicle, it feels like a pay rise. A consistent replacement cycle for your fleet vehicles also gives a sense of certainty to your employees and another reason to keep working hard for your business.
Car manufacturers have model cycles that impact the new and used prices of fleet vehicles. A model cycle is the period that a model will be on the market before it gets a complete revamp and redesign. This is usually around the 7-year mark.
So, if you buy a car nearing the end of the model cycle, you can usually get more bang for your buck because an update is scheduled soon. What this does mean, however, is that the resale value will be less when you sell it.
New models come with more technology and refinement, so it might be more worth your while to wait for the update and pay a slightly higher purchase price but then be rewarded with a better resale rate.
A little bit of research will help you get the timing right on your next purchase. Replacing your fleet vehicles at the right time will help to keep your business running optimally, allow you to get the best balance between costs and resale value and, most importantly, keep your employees safe on the road.
